Planning for Spending Patterns in Retirement

Pre-Retirement Years (Ages 50 – ≈62)
As you settle into what could be your final decade in the workforce, retirement is on the horizon. And while saving for retirement may be top of mind, it’s no secret that these years also come with their fair share of expenses – and often costly ones at that. From kids’ college tuition, to paying for a wedding, or even making a down payment on a new home, there are significant expenses you’ll likely encounter in your 50s and 60s.

So how can you balance these costs with saving for retirement? At this stage, it’s important to start taking account of your anticipated income and expenses once you leave the workforce. The closer you get, the clearer a picture you’ll have of what your nest egg, income, and expenses will look like in retirement. But what if the picture isn’t quite as bright and promising as you’d like it to be?

According to estimates by the U.S. Government Accountability Office (GAO), nearly half (48%) of households headed by someone age 55 or older lack any form of retirement savings¹. If you fall into this group or haven’t yet reached your financial goals, now is the time to start saving more aggressively. Doing so could be as easy as finding ways to eliminate wasteful spending to redirect more money to bolstering your retirement savings. And with more and more people opting to work longer or find ‘second act’ via jobs in retirement, you can also create a game plan for generating additional income.

Early Retirement (≈62-70)
You made it – retirement! With more free-time and flexibility, you likely have some ideas on how you plan to spend your post-workforce lifestyle. However, early retirement years are when you should expect some of the most significant changes to your budget.

Unless you have a pension, the days of receiving a steady paycheck may come to an end. And without this regular source of income, you’ll need to start planning how to best manage your funds for your retirement – both now and in the future. Be sure to revisit your plan for claiming Social Security benefits. While the minimum age to start collecting is 62, waiting until the full retirement age of 66 or 67, or the maximum age of 70 could mean a greater payout. Without employer-sponsored health insurance, you may also need to plan how you, your spouse, and any dependents will get coverage without your existing policy.

In adjusting to a limited or fixed income, you may find yourself in need of some additional cash. For many early retirees, this means taking on a part-time job or turning your passions into a business opportunity. Whether it be a few hours working at a local library, coffee shop or bakery each week – or providing guidance and assistance at the pro-shop at your nearby golf course, the possibilities here are endless. If you have a passion – there is likely a way to make some money from it!

On the other hand, if you’re confident in your retirement nest egg, you may be tempted to keep spending. Whether it be a lavish vacation or a new luxury car, there are plenty of ways you may have dreamt about spending your retirement years. After all – they’re called the “golden years” for a reason, right? Even if you are secure in your retirement finances, it’s important to remember that your retirement dollars need to stretch and keep up with the rate of inflation. Consider protecting your retirement funds by balancing these high-cost activities with other less-expensive or free ones. From spending time with family members, to taking a stroll at a local park, or even visiting museums and historical landmarks – there are plenty of ways to fill your days, without dipping into your retirement savings. In addition, since you’ll no longer need to live in close proximity to your job, you may consider relocating to a new area – ideally one with a lower cost of living.

Regardless of your financial situation or how you plan to spend your retirement years, tapping into your home equity with a Home Equity Conversion Mortgage (HECM) could provide an additional source of cash flow to help you live your golden years to the fullest. Insured by the Federal Housing Administration (FHA) since 1988, HECM reverse mortgages allow you as a homeowner to convert a portion of your home’s equity into cash² – while continuing to live in and maintain title and ownership of the home. Funds received from a reverse mortgage do not have to be repaid until after the final borrower no longer lives in the home. And since there are no monthly mortgage payments required on a reverse mortgage³, you can free up even more cash to use however you wish.

Mid Retirement (Ages 70-80)
Now that you’ve settled into retirement, you’re likely used to your post-workforce lifestyle. Since there is no financial incentive to delay Social Security past age 70, you’re likely claiming your monthly benefits. And once you turn 72, you’ll need to start taking required minimum distributions from certain types of retirement accounts such as profit-sharing, 401(k), 403(b), 457(b), and Roth 401(k) plans – as well as many types of IRAs. With these additional sources of income, middle retirement is a smart time to revisit your asset allocation.

In addition, you could also see your expenses decrease in the middle stage of retirement. As you age, you may find yourself travelling less or instead, basing your travel on local destinations or trips to visit grandchildren, as well as other friends and family.

However, if you do not have a pension, it’s still a good idea to identify opportunities to save some money. Fortunately, there are some simple ways to do so!  Consider getting some information about any and all available tax credits, taking advantage of senior discounts, and finding ways to fine-tune your budget.

You may also consider selling your large family home and instead, “right-sizing” to a home that’s more manageable to your retirement needs – or in a more desirable location or closer to family. While it’s no secret that moving costs are expensive, a HECM for Purchase could provide a viable option to buy the home you need, while continuing to meet your financial and retirement goals. A HECM for Purchase loan helps you accomplish two goals with a single transaction – buying a new home while securing a reverse mortgage. Many retirees like this option because it can help save money by reducing closing costs since a single loan is taken out.

Late Retirement (Ages 80+)
By now, you’re got this retirement lifestyle all figured out! But as you age in late retirement, the more likely you are to face increased healthcare costs. In fact, data shows that seniors ages 65+ can expect to spend an average of $11,316 on healthcare every year⁴. And when it comes to planning, you may want to factor in an even higher number to make sure your nest egg is well equipped. While Medicare will cover many expenses, you’ll need to account for out-of-pocket costs such as co-payments and deductibles. As you age, it’s as important as ever to reassess your retirement savings and assess whether they are enough to see you through advanced age.